Can the US Learn from India’s Climate Change Policy?

2010 could well end up being a landmark year for Green Development in India. On February 26th, Pranab Mukherjee, the Indian Finance Minister, announced the creation of a National Clean Energy Fund to support development of Renewable Energy to be financed by a tax of Rs. 50 (USD 1) per metric ton of coal used for power generation. Estimates show this could yield more than USD $600 million per year. This was followed on March 5th by the release of working details of India’s ambitious National Solar Mission, aiming to install 20,000 MW of solar energy by 2022, which was the same day that the National Finance Commission allocated nearly USD $1 billion to highly forested provinces of India towards conservation. A few days later, on March 9th, India formally submitted support for the Copenhagen accord. Given the diverse nature of India’s politics, a convergence of leadership on these issues to this degree is more than a great achievement.

India initiated climate change mitigation activities in 2002, ratifying the Kyoto Protocol, which sets binding emission reduction targets. India is currently exempt from these targets and is eligible to host Clean Development Mechanism (CDM) projects, which promote technology transfer and clean investments, offsetting emissions. It currently hosts 490 such Registered CDM Projects, the second largest after China, and is expected to issue over 41 million carbon credits annually.

Micro-level carbon reductions

Notably, relative to China, India has more small scale projects—well dispersed and many non-industrial, reflecting the vibrant clean development entrepreneur community. Indians now assist CDM project developers across SE Asia, the Middle East and Africa. This deep reach and popularity of CDM will go a long way in preparing India for a vibrant domestic cap and trade market.

However, I believe that at current pricing levels, carbon credits contribute only marginally to project finances and hence do not act as key enablers of emission reduction technology implementation. Additionally, the heavy transaction costs, combined with post-2012 uncertainty, have effectively excluded many of the micro level community-based emission reduction projects from the CDM. Encouraged by the success of CDM, and recognizing its limitations, the Indian government has created new environmental investment mechanisms to foster a kind of market maturity the pricing of carbon credits do not provide for.

Technical standards and transparency driving growth

The recently announced National Action Plan on Climate Change (NAPCC) contains, in addition to initiatives like the Solar Mission, provisions to establish a nationwide market for Energy Efficiency Credits (EECs) and Renewable Energy Credits (RECs), akin to the US market. These plans are expected to mobilize billions of dollars towards propagation of Renewable Energy and Energy Efficiency, much needed for an energy-deficient, growing economy.

Having worked many years in the Indian carbon markets, and having led projects in both the public and the private sectors, I am encouraged by the high technical standards (all ESCO’s will be Government certified) and high transparency (trading will only be allowed on a handful or regulated Energy Exchanges) of these new schemes. As another instance, the Solar Mission will reward developers with a superior tariff, to be recovered by blending solar power with thermal and passing on the increment as a minute average increase in per unit prices to individual users, a methodology I believe directly encourages implementation over all other forms of subsidies.

The Indian government’s adoption of these market-based solutions for its environmental issues, complemented with its forestry conservation initiatives, could soon provide a road map to other developing countries. The challenges lie in implementing these initiatives with as few deviations as possible, selecting the best technologies, rewarding the best developers and enforcing utmost transparency in reporting and execution.

About Author: Swapan is the CEO and Founder of Iora Ecological Solutions, a firm specializing in facilitating Small Scale Renewable Energy and Forestry Programs. Swapan is one of India’s leading Carbon Finance and CDM experts and has previously served in top management with several leading international firms to develop climate change related business opportunities in the Indian subcontinent.

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